A recent International Monetary Fund (IMF) report has revealed a surprising trend: Kenyan firms are increasingly turning to cryptocurrencies, particularly stablecoins like Tether (USDT), to settle payments with foreign suppliers, especially during periods of dollar shortages and shilling depreciation.

This finding, based on a market survey conducted by a joint working group of the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK), highlights the growing significance of digital assets in the Kenyan economy, despite the CBK’s prohibition on banks dealing with crypto entities.

Crypto Adoption Surges in Kenya

The survey paints a picture of a thriving crypto market in Kenya. The country ranks 21st globally in crypto adoption, boasting over 730,000 users, primarily young individuals under 40, who are investing in popular cryptocurrencies like Bitcoin, Ethereum, and USDT.

The sector’s economic impact is undeniable: the Kenya Revenue Authority (KRA) collected a substantial Sh10 billion in taxes from crypto users last year, and the market reportedly transacted a staggering Sh42.4 trillion between 2021 and 2022, representing nearly 20% of the country’s GDP.

Crypto as a Security Against Currency Volatility

While individual investments typically remain relatively small (under Sh100,000), both corporate and individual users are increasingly utilising digital assets as a security against the fluctuating value of the Kenyan shilling.

The ability to conduct international settlements in stablecoins like USDT, which are pegged to the US dollar, offers a compelling alternative to traditional banking channels, especially when faced with dollar shortages and currency devaluation.

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Understanding Stablecoins

Stablecoins are cryptocurrencies designed to maintain a stable value by being pegged to a reserve asset, such as the US dollar or gold.

This stability makes them more attractive for daily transactions, international payments, and hedging against currency fluctuations compared to volatile cryptocurrencies like Bitcoin and Ethereum.

Tether, for example, aims to maintain a 1:1 parity with the US dollar, meaning 1 USDT is theoretically equivalent to 1 USD.

According to recent data, Tether (USDT) reigns supreme as the most popular stablecoin among Kenyan crypto investors, commanding a significant 49% market share.

Following closely behind USDT is USDC, capturing the attention of 31% of Kenyan crypto investors. Issued by Circle, USDC is known for its transparency and regulatory compliance, making it a preferred choice for many.

While BUSD (Binance USD) once held a 9% market share, it has since been delisted and phased out.

Exploring Cryptocurrency in Kenya: Apps, Mining, and Legal Insights

Kenya cryptocurrency app users have been increasing as more people explore digital currencies. Many rely on Kenya cryptocurrency news to stay updated on market trends and regulations.

With the rise of Kenya’s cryptocurrency mining, tech-savvy individuals are capitalising on the opportunities it offers. Stories of Bitcoin millionaires in Kenya continue to inspire others to invest, with Bitcoin in Kenyan shillings making transactions more relatable to the local market.

Guides on how to buy cryptocurrency in Kenya are widely sought after. For detailed insights, many turn to resources like Cryptocurrency in Kenya PDF documents for comprehensive information.

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The Need for Regulation

The emergence of stablecoins presents both opportunities and challenges. While they offer innovative solutions for financial transactions, their growth necessitates a robust regulatory framework to ensure financial stability and protect consumers.

The Kenyan government will need to carefully consider the implications of this growing trend and develop a regulatory approach that balances innovation with the need to safeguard the integrity of the financial system.

The nation is currently drafting a comprehensive National Policy on Virtual Assets and Virtual Asset Service Providers, a move that signals a proactive approach to navigating the complexities of cryptocurrencies while safeguarding its financial system.

This policy framework, open for public comment until January 24, 2025, aims to strike a delicate balance between promoting innovation and mitigating risks associated with digital assets.

By establishing clear regulations, Kenya seeks to protect consumers, maintain financial stability, and potentially position itself as a model for other African nations grappling with the convergence of traditional finance and the digital asset revolution.